N.C. funeral service board misspends money

Who's in charge?

The N.C. Board of Funeral Service reports solely to the state Legislature. In addition to staff, the funeral serves board has nine members, four of them from the N.C. Funeral Directors Association, a trade group. The association has more power over the board than any other appointed entity.

Funeral services board president Harris High is a member of the N.C. Funeral Directors Association. He is in charge of all committee assignments.

All three members of the funeral services board's Law and Rules Committee, which recommended moving forward with approving the fee increases, belong to the N.C. Funeral Directors' Association.

Executive Director of the N.C. Funeral Directors Association Larry Stegall is the husband of Elizabeth Stegall, who works for the board of funeral services.

The remaining five board seats include two from the Funeral Directors and Morticians Association of North Carolina; one seat goes to a licensee unaffiliated with a funeral trade organization and two go to members of the public.

What's next?

The N.C. Rules Review Commission, which operates under the state Office of Administrative Hearings, approved the fee increase on Oct. 17. However, it received 10 letters of objection from the public, requesting legislative review of the proposal.

The General Assembly convenes May 14, 2014, and lawmakers have 30 days to introduce a bill that would disapprove of the fee proposal. If no bill is introduced, the fee increases will go into effect on the 31st legislative day.

The North Carolina Board of Funeral Service wants more money—a lot more—in the form of fees on funeral homes that may be passed on to consumers. But a state audit and an analysis by the INDY suggest the board has plenty of money but mismanages it—a finding that could force the fee increases to undergo legislative review.

The funeral service board has given double-digit raises to many of its staff, including the wife of the head of a North Carolina funeral industry trade group. This is according to documents obtained by the INDY and public comments from former board staff and a director submitted to a legislative committee.

The funeral board also purchased a $1 million office condo in Raleigh, instead of leasing cheaper space, and spent excessive amounts of money on car allowances for funeral home and crematorium inspectors.

The funeral board's $1 million budget is pegged to fees it collects from funeral establishments, crematoriums, pre-need contracts and training examinations.

The financial situation emerged in May, after the state auditor found that inspectors were not adequately monitoring and following up on facilities with deficiencies. Too much time had lapsed between inspections; instead of two- and three-year cycles, some funeral homes had not been inspected in four to eight years.

In response, the funeral board used the audit findings to ask for "significantly" higher fees—as high as 87 percent—on the state's 751 licensed funeral establishments and 110 crematories. The money would ostensibly be used to hire a fourth inspector for $85,000–$134,000 a year.

Although the baseline staff salaries are not exorbitant, the raises, especially in light of their state employee counterparts, seem excessive. (The funeral board staff are not technically state employees and are not subject to state budget cuts.)

State workers have received only a 1.2 percent pay increase over the past six years, wrote Jody Tyson, a former funderal board member in comments submitted to the group about the proposed fee increases.

Yet funeral board staff has received raises ranging from 4 to 25 percent over the past three years, with no change in job title.

After the audit, Tyson requested salary information for staff members going back to 2010. He called the salaries "astounding."

Elizabeth Stegall, the administrative services supervisor for licensing, is the wife of the executive director of the N.C. Funeral Directors Association, Larry Stegall. She received a 16.3 percent increase over three years. She earns $49,141 annually.

Marcia (Marty) Mills, an administrative assistant, received a 16.2 percent raise over the same time period. Her annual salary is $38,471.

Stephen Dirksen, funeral board attorney, has received an 11.6 percent increase over the past three years. He earns $77,471 annually.

The salary of Tanya Pearson, pre-need services administrator, jumped nearly 25 percent. She is paid $35,862. Pearson was promoted to her position in 2010, according to funeral board executive director Peter Burke.

Pearson has at least two assistants to help handle requests from families to funeral homes for a prepaid, prearranged funeral. Funeral director Joseph Smolenski of Renaissance Funeral Home in Raleigh said pre-need requests are slow to be processed. "Sometimes I will call them several weeks later and ask if they've gotten the pre-need just to make sure," Smolenski said. "More often than I think it should be, they'll say they haven't gotten to it yet. We can get penalized for not getting it back (to families) fast enough."

Stegall's position—and her salary increase—present a potential conflict of interest because of her marriage to Larry Steagall, who helped her get the job. Former executive director of the board Corrine Culbreth wrote in her public comments that, "[Elizabeth] was hired when Larry Stegall recommended he knew of someone in his office building that would be good for the position."

Culbreth wrote that the two were in a relationship at the time.

The board "did not have a conflict of interest clause at the time.Larry threatened to sue the board if we terminated Liz after they were married. [and] that scared some board members," Culbreth added.

Larry Stegall declined to comment and directed inquiries to N.C. Funeral Directors Association President Ken Caulder, who also had no comment on behalf of the organization. Repeated efforts to reach Elizabeth Stegall were unsuccessful.

"Some questions should arise how the wife of the NCFDA executive director has had the greatest change in salary since the association gained recommending authority," Tyson wrote in an email to the INDY.

Although the funeral board's Law and Rules Committee had the salary figures and public comments critical of the pay increases, it voted to increase the fees on licensees at a Sept. 11 meeting.

Committee chairman Kenneth Stainback referred requests for comment to the funeral board president Harris High. High said there was a misunderstanding and that Tyson "was given some different rates that were not accurate."

High said board members had an opportunity to discuss the comments before voting on the fee proposal, but no one requested to do so.

"There could have been one or two salaries that seemed high," High said. "But neither I nor (Burke) was around at the time when those discussions occurred. I don't know what the reasoning was."

Asked if he thought the funeral board could manage its money better, High said the board "goes over our financials every month, and no one had any questions or concerns."

"The whole purpose of the fee increase is to offset the negative audit report from the state auditor's office," High said. "We felt, and we feel, like it's necessary for us to add another inspector."

The board's policy requires funeral establishments with no serious deficiencies to be inspected every three years; those with deficiencies are placed on a two-year inspection schedule. In the agency's response to the audit, the board proposed hiring a fourth inspector, which "would not be possible without significant increases for both individual and establishment licensees."

Certain annual fees would increase, some as much as 87 percent. The 33 percent hike in annual permit renewal fees alone could generate more than $172,000, with each of the funeral establishments and crematoriums paying $200 annually to renew their operating permits.

According to recent public documents, Burke estimated the total annual cost to the funeral board to hire a fourth inspector at $134,000, significantly more than the figure quoted in the audit response.

However, that fee increase would cover more than just an inspector. Burke said the fee increases will also "addresses significant improvements to board service."

The funeral board's three inspectors received salary increases of 6 percent between 2010 and 2013. An additional $60,000 was budgeted this year for expenses, including travel, meals and hotels. The budget is on target thus far, but over the years expenses have varied wildly (see chart below).

Burke would not say whether there is a limit on inspectors' expenses, only that they "mirror state policy." However, he noted in the same email, "none of the staff are state employees, nor can they avail themselves of state benefits."

There are clearly inefficiencies in the inspection department that can drive up fees on licensees. Culbreth noted that inspector Susan Mitchell lives in the western part of North Carolina but is assigned to inspect some funeral homes and crematories in the eastern part of the state (though her official territory is "central" North Carolina). Mitchell's mileage reimbursement begins at the western most point of her territory, resulting in high travel expenses.

"The management of the inspectors is totally out of control," Culbreth wrote. "The territories need to be more aligned with their living arrangements and overseen more closely."

Tyson suggested the funeral board explore the possibility of contracting with N.C. Motor Fleet Management, a division of the state Department of Administration, regarding cars for inspectors. This change could save 40 percent in travel expenses, he said.

The funeral board is exploring that option, Burke said. As executive director, Burke himself is entitled to an annual car allowance of $4,175 as part of his compensation package. However, the funeral board has no way of gauging the necessity of that amount; there is no requirement of the executive director to track his mileage.

Although Dirksen, the funeral board attorney, has received a significant pay increase, he has never brought a case before the N.C. Office of Administrative Hearings, where the disputes are litigated. Instead, the board has retained outside counsel—specifically, the services of a "super lawyer" in the field of administrative law, Jack Nichols—for cases that go before the OAH, including two that are currently active. In addition, a full-time paralegal was added to staff at an annual cost of $49,000.

The funeral board has spent $121,000 since 2004 on outside counsel; the lowest amount was in 2004, with $4,611, the highest in 2007, with $32,375.. So far in 2013, it has spent $4,511.

"Staff funding for legal (services) exceeds $117,000 excluding benefits," wrote Tyson in the public comments, "but yet the services of outside counsel is still retained—all at the costs to licensees. Additionally, if an outside counsel is needed, why not use the Assistant Attorney General ... who is available at no cost to the board?"

Burke said Dirksen has represented the board in three cases in court; the majority of litigation "begins and ends" at the board level. Outside counsel can be required in cases of conflicts of interest or if Dirksen has been named as a potential witness in a case, Burke said.

Burke defended the legal staff, saying that as a result of litigation, "four funeral establishments have been shut down, four practitioner licenses have been revoked and one other suspended, four trainees have lost their permits, as has one pre-need establishment and two pre-need sales licensees."

Smolenski, director of Renaissance Funeral Home in Raleigh, said staff members' salaries are appropriate for their positions but that the timing of the salary hikes is questionable.

"I think it's odd they increased the salaries so much in such a short time, and I don't understand the dynamic behind that," he said.

There have been high costs associated with the funeral board's office as well. According to Tyson, after former executive director Mark Henderson pursued legislative changes allowing it, in 2004, the board purchased an office condo off Wade Avenue for nearly a million dollars instead of leasing a building from the state property list.

The total mortgage payments for 2013 are budgeted at $60,000, in addition to $23,500 in condo fees for the fiscal year. The mortgage is scheduled to be paid off in three years.

Further analysis of the budget shows a $42,538 allocation for postage and printing, though Burke confirmed no newsletters have been printed for 2013. He said the money pays for printing forms and sending mail to licensees.

The board also has a "reserve fund," a lifetime accumulation of revenue less expenses. Burke says there is no specific documentation related to that figure, but as of Aug. 31, 2013, the fund contained $109,210.18. Burke said the reserve is generated by fees and no amount is budgeted for the reserve.

"It is a balance over time of residual fees after expenses," Burke said. "It is occasionally used for unbudgeted business needs."

Tyson says the reserve is proof that the board is operating at a profit, which was never its intended function.

Corrine Culbreth believes the board is poorly managed, poorly staffed and has strayed from its original mission.

"Their purpose is to protect the public," she said. "They should encourage licensees and have empathy with trainees and help them in getting licenses. Now, they're totally non-personable."

Tyson calls for "serious review" of the board's operations.

"It is apparent that money has not been an issue (for the board)," he wrote. "To simply institute a fee increase because of findings of the North Carolina auditor is an easy fix to a self-created problem."

Corrections: The Funeral Directors Association has sole recommending authority for only four seats of the nine. The legislative changes to allow the Board of Funeral Service to purchase real estate were pursued by former Executive Director Mark Henderson.